Explanatory Brief: Monetary Authority of Singapore (Amendment) Bill 2017

1     Mr Ong Ye Kung, the Minister for Education (Higher Education and Skills) & Second Minister for Defence, on behalf of Mr Tharman Shanmugaratnam, Deputy Prime Minister and Minister in charge of the Monetary Authority of Singapore (MAS), today moved the Monetary Authority of Singapore (Amendment) Bill 2017 (the “Bill”) for First Reading in Parliament.

BACKGROUND

2     The MAS is introducing legislative amendments to strengthen the MAS’ powers to resolve distressed financial institutions in an orderly manner, taking reference from the Financial Stability Board’s Key Attributes of Effective Resolution Regimes (“Key Attributes”). In addition, the Bill introduces legislative amendments to address other operational matters.

3     MAS conducted public consultations on significant policy changes and the proposed legislative amendments between 2015 and 20161. There was broad support for the proposals, and the feedback received has been taken into account in the finalisation of the Bill.

KEY PROVISIONS IN THE BILL

(I) Enhancements to the Resolution Regime for Financial Institutions in Singapore

Recovery and Resolution Planning (RRP)

4     The Bill introduces amendments that will consolidate MAS’ powers to impose requirements relating to RRP on pertinent financial institutions2. Such financial institutions would be required to prepare and maintain recovery plans, submit information to MAS for resolution planning, and where necessary, adopt measures to address deficiencies in their recovery plans or remove impediments to orderly resolution.

Temporary Stays on Termination Rights

5     The Bill introduces amendments that will (i) dis-apply counterparties’ rights to terminate contracts with pertinent financial institutions where these rights arise solely by reason of the financial institution’s entry into resolution, and (ii) empower MAS to temporarily stay the early termination or acceleration rights of counterparties to contracts entered into with a pertinent financial institution over which MAS has exercised its resolution powers. This would provide MAS with sufficient time to implement resolution measures, such as a transfer of business functions to a bridge entity, to achieve an orderly resolution.

6      The temporary stay power will be subject to safeguards, including limits on the duration of stay imposed and the types of entities that the stay may not apply to.

Statutory Bail-In Regime

7     The Bill introduces amendments that will empower MAS to write down or convert into equity, instruments issued or contracted after the effective date of the bail-in regime, so as to absorb losses or recapitalise a distressed financial institution. The amendments provide for the financial institutions and instruments that will be within the scope of the bail-in regime to be prescribed in subsidiary legislation at a later date.

8     The Bill sets out that MAS, when exercising its statutory bail-in powers, will have regard to the principles of respecting the hierarchy of claims in liquidation and equal treatment of creditors of the same class.

Cross-Border Recognition of Resolution Actions

9     The Bill introduces a framework for MAS to recognise all or part of any resolution action taken by foreign resolution authorities on financial institutions in Singapore. The framework prescribes that, in determining whether a foreign resolution action should be recognised, MAS will take into account factors such as whether the foreign resolution action would have a widespread adverse effect on the financial system or economy of Singapore, whether it discriminates against Singapore creditors relative to other creditors of the financial institution, whether it is against public interest, and whether it has material fiscal implications.

Creditor Compensation Framework

10     The Bill provides creditors and shareholders, who receive under the resolution of a financial institution less than what they would have received had the financial institution been liquidated, with a right to compensation for the difference. This provision is in line with the “no creditor worse off than in liquidation” principle stipulated in the Key Attributes.

Resolution Funding Arrangements

11     The Bill introduces a framework for resolution funding arrangements to be established. The resolution funding arrangements will be used to meet the costs of implementing resolution measures, including the provision of loans to a financial institution under resolution, initial capital for a bridge entity, administrative costs, and creditor compensation claims. Such costs will be recovered from the financial industry and market participants on an ex post basis.  The mechanics of the resolution funding arrangements will be set out subsequently in subsidiary legislation.

Other Technical Amendments

12     The Bill also introduces several technical amendments that will clarify and enhance MAS’ existing resolution powers, including -
(i) provision for MAS to make subsequent adjustments after a compulsory transfer of business, including reversals of transfers of assets or liabilities and onward transfers; and
(ii) consolidation of MAS’ resolution powers for financial institutions under the Monetary Authority of Singapore Act, with the migration of existing resolution powers for insurance business from the Insurance Act to the Monetary Authority of Singapore Act.

(II) Objects of MAS

13     The Bill introduces a new provision that explicitly states that MAS’ developmental objective would be subordinate to its supervision objective. This is in line with one of the key recommendations from the last Financial Sector Assessment Programme conducted by the International Monetary Fund in 2013, to ensure that MAS’ mandate for prudential supervision is not compromised by its developmental mandate.

(III) Merger of Currency Fund with other funds of MAS

14     The Bill introduces amendments that provide for the merger of the Currency Fund with the other funds of MAS to improve operational efficiency. Since the merger of the Board of Commissioners of Currency, Singapore with MAS, backing for the currency in circulation through a separate Currency Fund has not been necessary. This is because the currency in circulation is effectively backed by the full financial strength and assets of MAS, which is much larger than the Currency Fund. The Government’s support for the currency in circulation remains unchanged, as the support that the Government currently provides for the currency in circulation as set out in the Currency Act is retained.

(IV) MAS’ Financial Arrangements with the Government

15     The Bill introduces amendments relating to MAS’ financial arrangements with the Government, including –
(i) providing the Government and MAS Board with the flexibility to revise the level of MAS’ paid-up capital, taking into account the level of capital and reserves necessary for MAS to carry out its principal objects and functions; and
(ii) allowing MAS to return profits to the Government as long as MAS has accumulated excess profits3. In determining the amount of profits to be returned on an annual basis, the MAS Board will have to ensure that MAS’ capital and reserves remain adequate for MAS to carry out its principal objects and functions.

(V) Financial Sector Development Fund (FSDF)

16     The Bill introduces specific financial and annual report provisions for the FSDF, in particular, the FSDF audited financial statements and the FSDF annual report shall be transmitted to the Minister, instead of the President. This is aligned with the approach taken by other statutory funds, as the audited financial statements and annual reports are sent to the relevant Ministers overseeing the statutory funds and are not presented to the President.

(VI)  Delegation of Managing Director’s powers in relation to the MAS common seal

17     The Bill introduces amendments that allow the Managing Director to delegate his power in relation to signing instruments which require the MAS common seal and witnessing the affixing of the seal, to a MAS officer who holds the appointment of Deputy Managing Director or its equivalent. This is to enhance operational flexibility.

 

1 The consultation papers and responses can be accessed at the following links:

2 MAS’ policy intent is to apply the RRP requirements to financial institutions regulated by MAS that are assessed to be systemically important or that maintain critical functions in Singapore.

3 The existing provision in the MAS Act requires MAS’ General Reserve Fund (GRF) to be at least half of the paid-up capital before a return of profits to the Government can be made.

Last Modified on 24/08/2017